BP BP stock is up 5% this week as investors digest its biggest oil find in 25 years and “a fundamental reset” which involves increased oil and gas production and a restructuring of the entire business. This week’s stock surge marks a strong recovery since the April global market selloff.
“BP can, and will, do better for its investors,” said CEO Murray Auchincloss, reflecting an underwhelming YTD performance relative to other European oil stocks.
But are investors convinced BP stock can sustain these gains, and close the gap with FTSE 100 rival Shell SHEL which is rumored to be looking at taking the company over?
Is BP Stock a Buy, Hold, or a Sell?
Morningstar analyst Allen Good says that BP already launched a strategic rethink just six months ago - and that left investors in the stock underwhelmed.
Investors have previously failed to buy into management’s plan, leaving BP stock languishing relative to peers, he says.
Will it be different this time for the UK oil stock? Good says that BP’s efforts to cut costs and improve returns are likely to bear fruit. Still, Morningstar continues to favor Shell stock in this UK space.
The fair value estimate on BP stock has been left unchanged at 445p, leaving the shares looking moderately undervalued even after this week’s gains.
Why Is BP Conducting a Strategic Review?
BP is now due to shed 6,200 jobs in all and has said it wants to increase fossil fuel output from 2.3m barrels of oil a day currently, to 2.5m barrels a day by 2030, increasing further after that.
It’s a huge turnaround from 2020 when BP became the only oil major to pledge to cut back its fossil fuel production and increase expenditure on renewable energy.
Instead, amid political hostility to the renewables industry, just last month BP announced it would be selling its US wind farm business by the end of the year.
It is also a sign of increased shareholder pressure. The FTSE 100 stock has US activist investor, Elliott Management, at its heels. The US hedge fund which has built a 5% stake in the oil major is putting pressure on BP’s turnaround strategy, having demanded its CEO add a further $5 billion of cost cuts to the already high target he announced in February this year.
